Commoditization is almost the total lack of meaningful differentiation in products and/or services; and, its practices are those in which price drives the quality of the product or service; margins fall through the floor; and, customers are attracted only on the basis of price, price, price. Commoditization affects franchisors in two areas: unit economics and franchise development.
In recent years numerous industries have commoditized their offerings. Many franchise candidates come from companies in these industries and have experienced the results of commoditization first hand. They have seen margins disappear, brand differentiation weaken, and their jobs may even have been lost to this trend. These candidates want to ensure that their investment won’t be compromised this way in the future. They are looking for a strong brand which differentiates itself in the marketplace.
Many candidates focus their franchise evaluation process on three areas:
- The Franchisor’s Market Share
- The Brand Differentiation of the Franchise Opportunity, and
- The Industry Growth Potential.
Today’s astute franchise candidates know that if end users (their future customers) perceive and value a franchisor’s products and services, its franchisees are the beneficiaries. End user’s brand appreciation results in higher gross margins and higher market share for the franchisees. Furthermore, if franchisors have a strong brand and a unique product line or service, they are most likely in an industry that has a higher probability of growth from which franchisees will also benefit.
To have strong franchise sales in the current economic environment, franchisors need respond to today’s more savvy franchise candidates. Franchisors need to learn how to allay candidates’ fears by describing how their brand is different and how their franchisees won’t be in a commoditization trap.
In the past franchise sales presentations emphasized the strong training and support programs the franchisor offered; the mission and vision of the franchisor and so on. While these topics remain important, franchisors must emphasize what makes them and their products different; and, how they plan to keep ahead of the game in the years to come. The key is to focus the conversation around how a franchisor’s brand stands out today, and how it will continue to do so in the future. Stop sounding like everyone else. Eliminate statements such as “we have great training or are franchisees love our marketing programs” from your presentation and be specific about how your brand is different.
Franchisors need to remember that no one wants to buy a franchise or be sold one; people just want the benefits of owning one. The job of the franchisor is thus the same as always: to show candidates how the franchise opportunity can help them achieve their income and lifestyle goals and expectations. Today, however, more than ever before, franchisors must grab the candidate’s attention up front by showing them the strength of their brand and sharing their plans for the future.
